Business Context and Reporting Period
Tanger Inc. is a self-managed REIT focused on owning and operating outlet and open-air retail centers in the United States and Canada. The filing combines Tanger Inc. and Tanger Properties Limited Partnership for the quarter ended March 31, 2024. The portfolio included 32 consolidated centers totaling approximately 12.7 million square feet, six unconsolidated centers totaling approximately 2.1 million square feet, and two managed centers totaling approximately 0.8 million square feet. Consolidated centers were approximately 97% occupied.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $123.4 million | $108.9 million | 13.2% increase |
| Rental revenue | $117.8 million | $103.6 million | 13.7% increase |
| Net income | $23.3 million | $24.9 million | 6.3% decrease |
| Net income attributable to Tanger Inc. | $22.4 million | $23.5 million | 4.8% decrease |
| Diluted EPS | $0.20 | $0.22 | Decrease |
| FFO available to common shareholders | $58.6 million | $52.0 million | 12.5% increase |
| Core FFO available to common shareholders | $60.1 million | $51.2 million | 17.3% increase |
| Core FFO per diluted share | $0.52 | $0.46 | Increase |
| Same-center NOI | $80.6 million | $76.7 million | 5.1% increase |
| Net cash from operating activities | $30.9 million | $25.5 million | 21.2% increase |
Reported net income margin was approximately 18.9% in Q1 2024, compared with 22.8% in Q1 2023. Portfolio NOI was $87.9 million, compared with $76.6 million. Adjusted EBITDA increased to $72.5 million from $59.5 million, while Adjusted EBITDAre increased to $77.2 million from $64.3 million.
At March 31, 2024, total debt was $1.472 billion, compared with $1.439 billion at December 31, 2023. Cash and cash equivalents were $8.1 million, and short-term investments were $7.7 million. The credit facilities had total borrowing capacity of $520 million at quarter-end, including $46 million outstanding. In April 2024, capacity increased to $620 million, with an accordion feature up to $1.2 billion.
Material Changes Versus the Prior Comparable Period
- Rental revenue increased $14.2 million, including $10.6 million from the Nashville development and the Asheville and Huntsville acquisitions completed in late 2023. Existing-property rental revenue increased $3.2 million, supported by occupancy and rent growth, partly offset by lower variable rent.
- Property operating expenses increased $2.3 million, primarily because of the newly developed and acquired properties.
- Depreciation and amortization increased $8.0 million due primarily to the new and acquired properties.
- Interest expense increased $2.0 million, primarily because new $325 million interest-rate swaps became effective at an average fixed pay rate of 3.90%, replacing $300 million of swaps with an average fixed pay rate of approximately 0.40%, and because the Company used its credit facilities.
- General and administrative expense increased $2.1 million, including $1.6 million of executive separation costs in 2024 versus a $0.8 million reversal of similar costs in 2023.
- Cash flow from operations increased $5.4 million, while investing cash use increased to $26.3 million from $1.9 million, largely reflecting lower proceeds from short-term investments and capital spending.
- Cash dividends paid increased to $29.6 million from $24.6 million. The quarterly dividend was $0.26 per share in Q1 2024; a $0.275 dividend was declared in April for payment in May 2024.
Outlook, Commentary, Risks and Unusual Items
Management did not provide a specific quantitative earnings or revenue guidance range in the filing. Management expects operating cash flow, cash on hand, credit facilities and access to debt or equity markets to support operating needs, debt service, planned capital expenditures and dividends for at least the next twelve months.
The April 2024 credit facility amendments increased capacity, extended maturity to April 12, 2028, with extension options, and reduced the applicable pricing margin from Adjusted SOFR plus 100 basis points to Adjusted SOFR plus 85 basis points based on the Company’s credit rating.
- Debt maturities and scheduled principal amortization total $3.9 million for the remainder of 2024, $47.5 million in 2025, $407.4 million in 2026, $625.0 million in 2027 and $400.0 million thereafter. Estimated interest obligations over the next twelve months were approximately $56.9 million.
- Management reported compliance with all debt covenants. Reported covenant metrics included total consolidated debt to adjusted total assets of 39%, unencumbered assets to unsecured debt of 246%, and consolidated income available for debt service to annual debt service charge of 5.8 times.
- Interest-rate risk remains material. A 100-basis-point change in SOFR would affect annual interest expense by approximately $1.0 million, and a 100-basis-point increase in market rates would reduce the estimated fair value of debt by approximately $37.4 million.
- Management identified risks from inflation, rising interest rates, labor and supply-chain issues, consumer spending, retailer bankruptcies or store closures, lease renewals, co-tenancy and sales-based lease provisions, capital-market access, joint ventures, Canadian currency exposure and potential property impairments.
- The Atlantic City center had an estimated fair value below its carrying value by approximately $109.9 million, but management concluded that the carrying amount remained recoverable and recorded no impairment. Future impairment charges remain possible if operating assumptions deteriorate.
- Approximately 2.6 million square feet, or 19% of the total portfolio including the Company’s share of joint ventures, was scheduled for renewal during 2024. As of April 30, 2024, renewals executed or in process covered 46.6% of that space.
Important Facts to Verify
- Confirm the sustainability of revenue and same-center NOI growth after the initial contribution from the Nashville, Asheville and Huntsville properties.
- Monitor the effect of higher interest expense, SOFR exposure and the $407.4 million and $625.0 million debt maturities in 2026 and 2027.
- Evaluate dividend coverage using FFO and cash flow after recurring capital expenditures and leasing costs; FFO is a non-GAAP measure and is not equivalent to discretionary cash flow.
- Track occupancy, tenant sales, lease renewals and any retailer bankruptcies or co-tenancy claims that could reduce rents.
- Review the Atlantic City impairment sensitivity, joint-venture support obligations and the $10 million maximum guarantee associated with the Galveston/Houston joint-venture debt.
- Verify that the April 2024 credit facility amendments remain available on the disclosed terms and that covenant compliance continues as maturities approach.